Experts: Tweaking, Target Dates Needed to Ease Convergence

With convergence to a single set of global accounting rules an inevitability as opposed to a possibility, it’s up to standards setters and regulators to put forth guidelines that are not only the best that can be written, but also ones that shed unnecessary complexity.

“There’s lots of room for improvement,” said former SEC Chief Accountant Donald Nicolaisen about the eventual marriage of U.S. GAAP and International Financial Reporting Standards and the rules vs. principles debate. “Both accounting models have derivation from the same places. Write the principles first and then have the rules support the principles. And then put the emphasis on principles.”

Nicolaisen’s remarks came during a conference on international standards hosted by Big Four firm Ernst & Young.

“In my 40-year career in accounting, I don’t recall anyone from Europe asking me if they could use GAAP,” Nicolaisen quipped. “The global economy is growing at a much faster pace than the U.S. economy. It’s not in the cards for us to try and dominate the world’s security markets [with U.S. GAAP]. We will have marginalized ourselves and find ourselves [in the position of] an also-player as opposed to a key player.”

Nicolaisen also advocated the adoption of technologies such as XBRL for investors to better access financial information and establishing definitive timetables for convergence to facilitate the extensive training and education that would be required.

“You have to lay out a timetable or else it will be very difficult to gather traction,” he advised.

Danita Ostling, leader, Americas, International Financial Reporting Standards at E&Y, said that it’s clear that IFRS, not GAAP, is the dominant language of financial reporting as evidenced by the fact that emerging markets accounted for 57 percent of all funds raised in IPOs as opposed to 37 percent just a few years ago. In addition, 100 countries now permit reports to be filed in IFRS.

“IFRS is not perfect. It certainly can be improved,” said Ostling, who also echoed Nicolaisen’s call for a timetable. “The U.S can’t afford to be an outlier.”